7 Tips for Pricing Your Work

Many freelancers brood over the price of their work. So here are seven tips for effectively pricing your work!

1. The Invoiced Amount Does NOT Equal Gross Salary

If you’ve worked as a salaried employee, you are accustomed to your salary being reported as “gross” on your pay slip. Your employer pays more than just your wages, so the “gross” includes employer costs. Your “net” salary is what you actually take home.

As a freelancer you must take into account that the price agreed with the customer does not equal a gross salary. The invoice total should cover payroll taxes, value added taxes, holiday money, expenses and other costs arising from the work. Hence you should bill more than your gross salary would be if you employed by your client.

The pricing of your work should take into account:

•   VAT
•   Employer Contributions
•   Materials and Accessories
•   Travel Expenses
•   Vacation and Sick Leave
•   Tools
•   Work Spaces
•   Telephone and Internet costs
•   Marketing
•   Discounts
•   Literature and Training

All this should be included in your final price. The amount of assignments varies monthly, sometimes you don’t have the opportunity to work as much as your customers. So take into account what you need for the times when there isn’t much to do.

Think about how much you want to earn per month or year and figure out how much you need to charge versus how much work you can actually accomplish in a year to get the desired amount.

UKKO.fi’s own salary calculator can help you calculate the proportion of the invoiced amount that will be disposal income and how much you should bill to reach a certain net salary.

It is worth distinguishing between the cost of labor and the costs of travel and material expenses. This makes sense not only for tax reasons but also so your customer can easily understand what’s on your invoice.

2. Compare Prices

Look at what your competitors charge. You’ll find guidelines for your own pricing by examining your industry’s pricing. But those prices aren’t easily found, so you should ask for advice on pricing your services or goods from other freelancers and the relevant union. If your industry has a collective agreement it is worth knowing what the minimum wage is. If you are uncertain regarding the price, set your price level as an average price based on the information you do have.

3. Find a Pricing Model that Suits You

The cost of your work is affected by:

•   Amount of Time
•   Costs and Expenses
•   Quality of Work
•   When and How Quickly the Work is Completed
•   Competition
•   Value for the Customer
•   Customer’s Budget

Other factors that affect the cost include whether or not you’re creating something new, or if the work is routine.

Work can be priced based on hours worked (such as in the cleaning and IT industries) or packaged projects. Photographers often offer student photography or wedding photography as a packaged price. If you invoice for hours worked you should budget and agree with your client how many hours it will take to accomplish the work. Billing according to hours can be problematic because you do not necessarily know how long it takes to complete the work. For a beginner, it takes a longer time to perform a task than an experienced professional.

Once you are familiar with pricing your work, you should create a price list, and test it with customers. Practice makes perfect, even in pricing. Remember, it’s easier to explain to a client why the price fell rather than why it rose. So start with a higher price, then you can give discounts.

4. Present Prices in an Attractive Way

Pay attention to how you present prices. Attractive prices lead to more sales. Have options and test them:

•   € 20 or € 19.95
•   € 1.75 discount or 30% discount?

Prices should appear to be based on carefully calculated costs and not as if they are a randomly selected a sum. Thus, €1985 is better than  €2000. On the other hand round amounts are great for packages and campaigns.

If the client’s budget is tight, they may not buy your services if the price exceeds their ability to pay. In contrast, a low price may not be seen as credible, and the customer may select a more expensive option in the hopes of better quality.

You can also motivate customers to spend more based on the value your work will add to their business.

5. Discount and Sell More

If you give a discount, you need to sell more to earn the same amount of money as you would under the original price. Before you provide a discount consider the purpose of the discount is.

For example, you may reward regular customers with a discount. The idea here is that you save the cost of acquiring new customers. However this rebate needs to be recovered by occasionally invoicing at a higher price.

The Federation of Finnish Enterprises has a discount calculator you can use to determine the effect of a rebate on your gross margin.

6. Don’t Undervalue Your Work

Perhaps the most important rule in pricing your work is to not undervalue it. Your salary should not be less than the industry’s statutory minimum wage, if your industry has one. Predatory pricing does not pay, it will help no one in your industry and will only lead to a downward spiral for all. However, it pays to consider that as a beginner in an industry you cannot charge as much as experienced professionals.

Consider all the costs when invoicing clients. Regrettably many do not want to have VAT included. Costs that are debited by the client as sales income for the company must have sales tax paid on them.

Play safe when creating your quote, aim high with your budget but make sure it is realistic and you are not forced to ask for more money or time from your customer. It is important to perform the job within the agreed budget and timeframe.

If the customer is in a hurry and work needs to be performed with only a few days notice you should charge more due to the tight schedule.

7. Prepare for Risks

The saddest part about working as a freelancer is that customers sometimes pay late or don’t pay at all. You should always have a written contract for the work. The contract should include deliverables, price, delivery date and terms, payment terms, liability and consequences. A contract will help you chase up payment if the client doesn’t want to pay the invoice.

Payment terms are a competitive tool to be used with care. For consumers, the payment should be within at least 14 days, while for companies it can be shorter. Many companies won’t provide payment at all in under 30 days. You can try to offer a discount for a shorter period of payment.

Usually customers pay their bills on time. This does not mean that your salary will be in your account on the due date. The delay in payments between banks and UKKO.fi should be accounted for when calculating the time it takes to receive your salary. So reserve enough time for potential difficulties.

Invoice clients for a project when a project is completed. If the project is large, you can bill a customer with installments or invoice them for an advance such as 30% of the total to cover material costs and the like.

Note, when you give a quote you are legally bound by it. If you do not have enough information to provide an offer you can submit an estimated budget, which is not legally binding.